Tuesday, March 19, 2013
The Mystery of the Elvis Dumervil Contract Mix-up
Elvis Kool Dumervil, the star defensive end for the Denver Broncos, has been in the news recently based on an alleged mix-up involving a contract renegotiation with the team. I have read multiple reports and still cannot figure out exactly what happened from a contractual formation standpoint. But here's my current understanding and analysis...
Dumervil's contract with the Broncos, like most NFL player contracts, had an "opt out" of sorts for the Broncos. Under the contract, the Broncos could either pay Dumervil $12 million to play next season--and have that entire amount count against the team's salary cap--or cut him ("cut" being the sports term for "fire") and only have a portion of his salary count against the team's cap. Without getting into too much detail, each team has a maximum amount of money it is allowed to pay in player salaries per year, subject to various adjustments. If the Broncos were able to reduce how much Dumervil's salary would count against their team's cap, they conceivably would have been able to spend more money to sign other players and improve their team; hence their interest in keeping the cap number down.
To avoid a bad salary cap consequence and still keep Dumervil, the Broncos sought to renegotiate a middle ground. They offered to keep versus cut Dumervil but for a reduced salary amount of $8 million. According to various reports, that offer was only open until 1pm MDT on Friday, March 15th. The Broncos set that deadline because they faced a deadline of their own set by the NFL. Specifically, the only way the Broncos could avoid the full salary cap hit of $12 million under NFL rules was to cut Dumervil by 2pm MDT (or show that they had re-signed him to a different deal). If they cut him prior to 2pm MDT, they'd only take a $5 million hit; if they cut him anytime after 2pm MDT, they'd take a $12 million hit.
In the early afternoon of March 15th, Dumervil reportedly rejected the Broncos' $8 million offer over the phone (thereby terminating the Broncos' offer, most likely). However, Dumervil later told the Broncos that he had changed his mind. The Broncos then renewed their $8 million offer but specified that Dumervil could accept only by faxing his acceptance to them prior to the NFL's 2pm deadline. When the Broncos did not receive a fax from Dumervil by that time, they cut him. Dumervil's agent has said that the fax was sent to the Broncos at 2:06pm due to some delay in getting a fax from Dumervil.
When the story first broke, some media outlets were reporting that a fax machine malfunction was to blame. Thus, many commentators initially expressed frustration that a bungled or late transmission via fax, a now-outdated device, could have such a significant impact. When I heard those reports, it seemed that the media outlets, like some first-year law students, were overemphasizing the need for a writing and deemphasizing the parties' actual intent. As we teach our students, a signed writing often is not required; contracts are formed all the time without that formality. Subject to the statute of frauds and other exceptions, a contract can be formed without a writing, faxed or otherwise. And, unless the offeror limits the form of acceptance to a signed and faxed writing, the acceptance may be communicated in any reasonable manner. In sum, it is intent of the parties that controls. Thus, if the Broncos really wanted to sign Dumervil to a new $8 million deal (that could be completed within 1 year of its making) based on his verbal agreement, no rule of contract law would have prevented it. In other words, if Dumervil truly had communicated his acceptance to the Broncos, the absence of a faxed signature from Dumervil would not prevent contractual formation unless: (i) the Broncos had stated that acceptance could only be via fax or similar writing; or (ii) the contract was one that could not be performed within a year or otherwise subject to the statute of frauds. We would need more facts to analyze both of those issues.
Of course, another possibility outside of traditional contract law (and the proverbial elephant in the locker room) is that the NFL likely has its own rules regarding contractual formation under its collective bargaining agreement or through some other mechanism. That's the part of the mystery about which I have no information at this point. Some reports seem to indicate that the NFL's rules somehow prevented contractual formation and that the Broncos are seeking a change of heart from the NFL. Perhaps someone more familiar with the NFL's rules can comment on that. In the meantime, I think Bronco fans can stop blaming general contract law and continue blaming the Broncos and the NFL. At least for now.
[Heidi R. Anderson]
Online Symposium on Oren Bar-Gill's Seduction By Contract, Part I: Credit Cards
This is the first in a series of posts on Oren Bar-Gill's recent book, Seduction by Contract: Law Economics, and Psychology in Consumer Markets. The contributions on the blog are written versions of presentations that were given last month at the Eighth International Conference on Contracts held in Fort Worth, Texas. This post is contributed by University of Texas Law Professor Angela Littwin.
I am currently teaching a seminar on credit cards, so I was thrilled to present on the work of a major thinker in the field. If there’s one person whose name is synonymous with the behavioral economics of credit cards, it’s Oren Bar-Gill. His work has been influential within the academy and outside of it. The recent federal overhaul of credit card law, The Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act), was heavily influenced by law and behavioral economics. (Here’s another CARD Act link for those who want a summary instead of the whole statute.) Credit cards are also a great topic for Contracts, because with credit cards, contract design is the entire game.
The credit card chapter in Seduction by Contract is very successful. If you want a primer on exactly what the trouble is with credit cards, this chapter is perfect place for you. The crux of Bar-Gill’s argument is that credit card issuers use complexity and cost deferral to seduce consumers into borrowing more in the short-term than they would prefer in the long-term. He illustrates how specific credit card pricing features play into the imperfect rationality of optimism-biased consumers. He concludes by discussing the recent CARD Act and with policy proposals centered on use disclosure.
Convincing people that credit card contracts are complex is an easy sell. One way Bar-Gill does so is by simply listing all the of types fees consumers can pay (i.e., overlimit fees or application fees). There are nineteen of them. And this number doesn’t even include types of interest. I can also add that in my seminar, we have a day in which I ask the students to find and read a credit card contract. Student routinely say that this is the hardest reading they have done in law school.
What’s even more interesting than the complexity itself is the purpose of it. Credit card issuers use complexity as a way of shielding their pricing model from consumers. Issuers provide benefits through short-term, more salient product features (like teaser rates and rewards) and assess costs through long-term, less salient product features (like late fees and default interest rates). This pricing structure enables – or rather requires – issuers to compete for consumers via deception.
Bar-Gill’s policy proposal, use disclosure, addresses this deception directly. Use disclosure would require credit card issuers to give consumers information on how they use their credit cards. The CARD Act does some of this, but Bar-Gill proposes taking it further. Under Bar-Gill’s proposal, consumers would receive an electronic file that they could take to a new issuer or an intermediary, like Bill Shrink, to get a new total-cost credit card quote. Use disclosure seems like a great way to encourage consumer behavioral learning. My one critique is that consumers would have to learn the hard way. I think that many consumers would have to get in real trouble with credit cards before the behavioral learning would take place.
This is why my only disappointment with the chapter is that Bar-Gill stopped with use disclosure. I wanted to see him explore the CARD Act in more detail and offer more policy ideas. So I’ll end this blog post as I ended my talk, with a plug to read his paper with Ryan Bubb, Credit Card Pricing: The Card Act and Beyond (Cornell L. Rev., 2012), which addresses both of those points and more.
[Posted, on Angela Littwin's behalf, by JT]
Monday, March 18, 2013
Online Symposium on Oren Bar-Gill's Seduction By Contract
For those of you who missed the discsussion Oren Bar-Gill's book at the Eighth International Conference on Contracts held in Fort Worth, TX last month, we will be providing a written version of the panel over the next week or so. As we did at the conference, each commentator on the book will address a different substantive chapter (the introductory chapter sets out the model that informs the three substantive chapters). Professor Bar-Gill will then weigh in with his responses at the end.
The participants are as follows:
Professor Angela Littwin will address Seduction by Contract's chapter on credit cards. Professor Littwin studies bankruptcy, consumer, and commercial law from an empirical perspective. Most recently, she has written about pro se filers in bankruptcy and the relationship between consumer credit and domestic violence. She was one of the principal investigators on the 2007 Consumer Bankruptcy Project, which has been the leading study of consumer bankruptcy for the past 25 years.
Professor Littwin received her undergraduate degree from Brown University and graduated from Harvard Law School in 2002. After law school, she clerked for the Honorable Rosemary Barkett of the U.S. Court of Appeals for the Eleventh Circuit and founded ROAD (Reaching Out About Depression), a community-organizing project for low-income women. Prior to her appointment at the University of Texas School of Law, she was a Climenko Fellow and Lecturer on Law at Harvard Law School.
Professor Littwin teaches bankruptcy, secured credit, and a seminar on the regulation of credit cards at the University of Texas School of Law, where she has been on the faculty since 2008.
Here recent publications include:
- Escaping Battered Credit: A Proposal for Repairing Credit Reports Damaged by Domestic Violence, 161 University of Pennsylvania Law Review 363 (2013);
- Coerced Debt: The Role of Consumer Credit in Domestic Violence, 100 California Law Review951 (2012); and
- The Do-It-Yourself Mirage: Complexity in the Bankruptcy System, in Broke: How Debt Bankrupts the Middle Class at 157 (Katherine Porter, ed., Stanford: Stanford University Press, 2012).
Professor Littwin's post can be found here.
Professor Alan White, who will comment on the book's chapter on mortgages, joined the faculty at the CUNY School of Law in 2012. He teaches consumer law, commercial law, bankruptcy, comparative private law and contracts. He is a nationally recognized expert on credit regulation and the residential mortgage market. Professor White is a past member of the Federal Reserve Board’s Consumer Advisory Council, a member of the American Law Institute, and is currently serving as reporter for the Uniform Law Commission’s project on a Residential Real Estate Foreclosure statute. He is quoted frequently in the national media, including the New York Times, the Wall Street Journal and the Washington Post, in connection with his research on the foreclosure crisis. He has published a number of research papers and articles on housing, credit and consumer law issues, and testified before Congress and at federal agency hearings on the foreclosure crisis, bankruptcy reform and predatory mortgage lending.
Before becoming a full-time teacher, Professor White was a supervising attorney at the North Philadelphia office of Community Legal Services, Inc., and was also a fellow and consultant with the National Consumer Law Center in Boston and adjunct professor with Temple University Law School and Drake University School of Law. His legal services practice included representation of low-income consumers in mortgage foreclosures, class actions, bankruptcies, student loan disputes, and real estate matters. Mr. White received his B.S. from the Massachusetts Institute of Technology and his J.D. from the New York University School of Law.
His recent publications include:
- Losing the Paper – Mortgage Assignments, Note Transfers and Consumer Protection, 24 Loyola Consumer Law Journal 468 (2012)
- Credit and Human Welfare: Lessons from Microcredit in Developing Nations, 69 Washington & Lee Law Review 1093 (2012)
- The Impact of Federal Pre-emption of State Anti-Predatory Lending Laws on the Foreclosure Crisis, 31 Journal of Policy Analysis and Management 367 (2012) (with Lei Ding, Carolina Reid and Roberto Quercia)
- The Impact of State Anti-Predatory Lending Laws on the Foreclosure Crisis, 21 Cornell Journal of Law & Public Policy 247 (2011) (with Lei Ding, Carolina Reid and Roberto Quercia)
- State Anti-Predatory Lending Laws and Neighborhood Foreclosure Rates, 33 Journal of Urban Affairs 451 (2011) (with Lei Ding, Carolina Reid and Roberto Quercia)
Alan's first post is here.
Alan's second post is here.
Alan's third post is here.
Alan's fourth post is here.
Professor Nancy Kim will address Seduction by Contract's chapter on cell phone contracts.
Our readers are likely familier with Professor Kim, who joined the faculty of the California Western School of Law in fall 2004. She has also taught as a visiting faculty member at The Ohio State University, Moritz College of Law, Rady School of Management at the University of California, San Diego and Victoria University in Wellington, New Zealand.
Prior to joining the faculty at California Western, Professor Kim was Vice President of Business and Legal Affairs of a multinational software and services company. She has worked in business and legal capacities for several Bay Area technology companies and was an associate in the corporate law departments at Heller, Ehrman, White & McAuliffe in San Francisco and Gunderson, Dettmer in Menlo Park.
While in law school, Professor Kim was Associate Editor of the California Law Review and Associate Editor of the Berkeley Women’s Law Journal. After graduating from law school, she was a Women’s Law and Public Policy Fellow at Georgetown University Law Center and a Ford Foundation Fellow at UCLA School of Law. Professor Kim is a member of the State Bar of California and a past recipient of the Wiley W. Manuel Award for pro bono services for her work with the Asian Pacific American Legal Center.
Professor Kim currently serves as Chair-elect of the section on Contracts and as a member of the executive committee of the section on Commercial and Related Consumer Law of the American Association of Law Schools. She is a contributing editor to the Contracts Law Prof Blog, the official blog for the AALS Section on Contracts. Her scholarly interests focus on culture and the law, contracts, women and the law, and technology.
Her book, Wrap Contracts: Mass Consumer Contracts in an Information Society is due out later this year. Some of her publications can be found here.
Nancy's first post is here.
Nancy's second post is here.
Finally, Oren Bar-Gill will respond to the comments on his book. Oren Bar-Gill is a Professor of Law and Co-Director of the Center for Law, Economics and Organization, New York University School of Law, where he has taught since 2005.
Professor Bar-Gill’s scholarship focuses on the law and economics of contracts and contracting. Before joining the faculty at NYU, he was at Harvard University, where he was a Fellow at the Society of Fellows, as well as an Olin Fellow at Harvard Law School. Professor Bar-Gill holds a B.A. (economics), LL.B., M.A. (law & economics) and Ph.D. (economics) from Tel-Aviv University, as well as an LL.M. and S.J.D. from Harvard Law School. Bar-Gill served in the Israeli JAG, from 1997-1999, where he participated in criminal, administrative and constitutional proceedings before various courts including the Israeli Supreme Court and the IDF Court of Appeals.
A list of his publications can be found here.
Professor Bar-Gill's contribution to our forum can be found here.
We look forward to a lively exchange, and we hope readers will feel free to weigh in.
Thursday, March 14, 2013
New York Appellate Court Tosses Prenuptial Agreement Due to Fraudulent Inducement
A Brooklyn-based appellate court recently upheld a trial court ruling (946 N.Y.S.2d 66) that a prenuptial agreement was uneforceable due to fraudulent inducement. The Cioffi-Petrakis v. Petrakis ruling surprised family law experts in New York and nationally because prenuptial agreements like this one generally were seen as unassailable. The Wall Street Journal quotes several prominent divorce lawyers, stating that the ruling is "a game-changer" with "huge implications" that will "be quoted in every single case going forward."
Some appear to contribute the shocking result to Ms. Perakis's lawyer, Dennis D'Antonio, who is a contract litigator and not a family lawyer. Mr. D'Antonio stated told the WSJ that he presented the case as a contract case: "The matrimonial bar tends to do things the way they always did, and they approached the prenup as something you can't challenge," D'Antonio said. "We applied old-fashioned contract law."
Ms. Petrakis alleged that her husband lied to her in order to get her to sign the agreement. Specifically, he reportedly stated that he would tear up the agreement after the couple had a child (the couple had three children together). After she still refused to sign, Mr. Perakis threatened to call the whole thing off 4 days prior to their wedding after Ms. Perakis's parents already had spent $40,000.
The trial court stated the applicable standard as follows: "To sustain a claim for common-law fraudulent inducement, a plaintiff must demonstrate the misrepresentation of a material fact, which was known by the defendant to be false and intended to be relied upon when made, and that there was justifiable reliance and resulting wrong." Ms. Perakis alleged facts sufficient to satisfy that standard. Specifically, the court stated:
"The court credits the wife's testimony...that her fiancé told her 'not to worry' and 'we'll work everything out' to be convincing. Similarly convincing is her testimony that she was told by her fiancé that, 1) if she didn't sign the prenuptial agreement they wouldn't be getting married in a week, 2) that 'everything they get after the marriage would be theirs' and 3) 'after they had a family he would tear up the agreement.' The court concludes that, based on the such promises, the wife called Mr. Hametz to arrange to sign the prenuptial agreement."
The appellate court opinion is rather short. It affirms that contracts may be deemed uneforceable due to fraud or duress but makes no sweeping statements regarding prenuptial agreements. For Ms. Perakis, the result is rather significant. The agreement stated that she would get only $25,000 per year. Her husband reportedly is worth $20 million.
[Heidi R. Anderson]
Wednesday, March 13, 2013
New in Print
Ariel C. Avgar, J. Ryan Lamare, David B. Lipsky & Abhishek Gupta, Unions and ADR: The Relationship between Labor Unions and Workplace Dispute Resolutions in U.S. Corporations, 28 Ohio St. J. on Disp. Resol. 63 (2013)
Howard S. Bellman, The Importance of Impasse Resolution Procedures to Recent Revisions of Wisconsin Public Sector Labor Law, 28 Ohio St. J. on Disp. Resol. 37 (2013)
Michael Carrell & Richard Bales, Considering Final Offer Arbitration to Resolve Public Sector Impasses in Rimes of Concession Bargaining, 28 Ohio St. J. on Disp. Resol. 1 (2013)
Charles B. Craver, The Use of Alternative Dispute Resolution Techniques to Resolve Public Sector Bargaining Disputes, 28 Ohio St. J. on Disp. Resol. 45 (2013)
Joel Cutcher-Gershenfeld & Saul A. Rubinstein, Innovation and Transformation in Public Sector Employment relations: Future Prospects on a Contested Terrain, 28 Ohio St. J. on Disp. Resol. 107 (2013)
Martin H. Malin, Two Models of Interest Arbitration, 28 Ohio St. J. on Disp. Resol. 145 (2013)]
Lamont E. Stallworth & Daniel J. Kaspar, Employing the Presidential Executive Order and the Law to Provide Integrated Conflict Management Systems and ADR Processes: The proposed National Employment Dispute Resolution Act (NEDRA), 28 Ohio St. J. on Disp. Resol. 171 (2013)
Tuesday, March 12, 2013
Crime and Punishment . . . and the Parol Evidence Rule
In Book II, Chapter 1 of Crime and Punishment by Fyodor Dostoevsky (pictured), beginning on page 192 in the version to which I have linked, the novel's protagonist, Rodion Romanovich Raskolnikov, describes an oral agreement with his landlady. The context is as follows:
The day after Raskolnikov has committed a double homicide, he is called to the police office. He is understandably unnerved and fears that the authorities are on to him. Moreoever, he is about to fall into a fit of delirium and is in no condition to keep his wits about him before the police. However, when he arrives, it turns out that he has been called in as a debtor. The supersilious assistant superintendent informs Raskolnikov that he has been called in on an I.O.U. that he made out to his landlady, the widow Zarnitsyn, for 115 roubles. It appears that the good widow has assigned the I.O.U. to one Mr. Tchebarov who is now seeking recovery.
Raskolnikov, relieved that he has not been called in for murder, explains to the authorities why he is so surprised to be expected to pay his debt. He informs them that he had had his rooms with the widow Zarnitsyn for three years. Early in his time there, he promised to marry the widow's daughter, and since he was practially a son-in-law, the widow extrended credit to him. But the daughter had died of typhus.
Some time after that, the widow came to Raskolnikov and, while claiming that she still trusted him, offered that she would trust him more if he gave her an I.O.U. for the full amount of the debt that he owed her for the lodgings -- that would be the 115 roubles. He signed the I.O.U. based on her assurances that, once he signed, she would trust him and would never, never seek to enforce it. Raskolnikov adds a sort of laches argument that the widow had waited until he had lost his lessons and had no source of income whatsoever to seek to recover on the I.O.U.
The authorities were not interested in these details, instructing Raskolnikov: :"You must give a written undertaking, but as for your love affairs and all these tragic events, we have nothing to do with that." If any of our readers has any familiarity with 19th-century Russian law, feel free to weigh in, but it does seem like Raskolnikov has only the weakest of fraud in the inducement claims and so his testimony as to the widow's promise, though perhaps admissible despite the written agreement, will carry little weight. Of course, Raskolnikov would have to show that the widow knew, at the time she promised not to enforce the I.O.U. that she in fact would do so. And does it matter that such a promise should not be taken seriously on any account, or were 19th-century Russians really so romantic that they valued signed undertakings even if they had no intention of enforcing them?
Or, even absent a showing of fraud, Raskolnikov's parol evidence might be relevant to show the parties' frames of mind. Although the document looks legally binding, perhaps neither party regarded it as such. Both had in mind only a written affirmation of their mutual obligations -- the landlady avowed her trust and Raskolnikov evidenced his trustworthiness through his willingness to sign. The I.O.U. is no more enforceable than a written pledge to be best friends forever.
There is also the additional issue. The widow did not seek to enforce the I.O.U.; she assigned it to Tchebarov, whom she likely did not inform of her promise to Raskolnikov. If the I.O.U. really is unenforceable, then the transfer of it ought not to make it any more so, and if the widow has committed some sort of fraud, it might arise from passing on an I.O.U. that she knows to be worthless as though it were of some value.
Weekly Top Tens from the Social Science Research Council
Monday, March 11, 2013
Life Imitates Art; Martha Stewart Imitates Lady Duff
My co-blogger, Meredith Miller has already commented on the ways in which Martha Stewart is the modern Lady Duff. It really is extraordinary. Martha Stewart is, of course, far more diverse and perhaps more ambitious in terms of the range of products that her company produces, but Lady Duff was quite the force in her day. Remember that Mr. Wood sued her because her agreement to endorse merchandise sold in Sears Roebuck stores allegedly violated their agreement that he was to be her exclusive marketing agent.
As reported in the New York Times, Martha Stewart was in court last week testifying in a showdown between Macy's and J.C. Penney over which company gets to carry Martha Stewart products in its stores. Alas, the facts in this case are much more complicated than the straightforward Wood v. Lady Duff-Gordon. However, the kernel of the dispute is very much reminiscent of the older case.
Martha Stewart's company, now called Martha Stewart Living Omnimedia (MSLO), entered into an agreement with Kmart in 1997 permitting Kmart to sell the company's products in its stores. Ten years later, MSLO entered into a similar agreement with Macy's, and when the agreement with Kmart expired in 2009, Macy's became "the only retailer to sell [MSLO] products in categories like home décor, bedding and bath," according to the Times. In 2011, J.C. Penney started attempting to woo Ms. Stewart into a deal to sell MSLO products in its stores as a mechanism for bolstering its shaky financial performance. James B. Stewart's column in last week's New York Times indicates that, since its new CEO has come on board, J.C. Penney has reported a $4.28 billion loss in sales and laid off 2200 workers, while its share price has dropped 60%.
Upon learning that Ms. Stewart was in bedding with J.C. Penney, Macy's was not well-pleased. In her testimony, Ms. Stewart did not seem to see the problem. When asked if a consumer was likely to buy the same product, say a knife, at two different stores, Ms. Stewart gamely answered that the consumer might have two houses and need one knife for each kitchen. This might explain why she no longer sells her goods at Kmart. What's the point of selling to a demographic that includes renters? She might have added, "I like to keep an extra knife handy for back-stabbing," but her talents for self-mockery (in response to a question about how she spends her time, she responded "I did my time," to the delight of the courtroom audience), do not extend quite that far.
In today's New York Times, David Carr presents an apt anaology: the conflict is like a schoolyard fight between two boys over the most popular girl on the playground. And Carr succinctly explains why Martha Stewart is so popular. Ms. Stewart, he reminds us, "altered the way that people live by decoupling class and taste. . . . When you go into Target or Walmart and see a sage green towel that is soft to the touch, it may not carry her brand, but it reflects her hand. Her tasteful touch — in colors, in cooking, in bedding — is now ubiquitous. . . ." Here too, there are echoes of Lady Duff.
Ms. Stewart expressed surprise that a simple contract dispute would end up in court. It should be possible for the parties to come to an understanding of words written on a page. New York Supreme Court Justice Jeffrey K. Oing may agree, since he sent the case to mediation, but according to James Stewart, he might have arrived at that result through a reasoning process that Ms. Stewart would not endorse. According to James Stewart, the meaning of the contract is clear:
[T]he contract itself seems straightforward, with numerous clauses giving Macy’s exclusive rights to Martha Stewart products in various categories, including “soft home,” like sheets and towels, as well as housewares, home décor and cookware, and specifically limits her rights to distribute her products through any other “department store.”
He adds that there is no question that J.C. Penney is a department store. Justice Oing appeared to agree, since he repeatedly said that the contract is clear, and he granted an earlier injunction. J.C. Penney may have hoped to get around the exclusive contract by setting up a MSLO boutique within its own stores, but James Stewart gives a number of reasons, both legal and factual, and citing to the authoritative Charles Fried on the law, for why that argument is unlikely to fly.
What might fly would be a giant Martha Stewart balloon at the next Macy's Thanksgiving Day Parade. According to James Stewart, Ms. Stewart still asks for and receives free tickets for herself and her grandchildren to that event. Last year, James Stewart reports, she complained that she did not get to sit with the other celebrities who are seated with Macy's CEO, Terry Lundgren. Time for Macy's to show Martha Stewart the love. After all, Macy's does need her products in its stores.
Eighth Circuit Describes and Permits a Scheme to Get Around Arbitration
In In re: Wholesale Grocery Products Antitrust Litigation, five retail grocers sought to bring anti-trust class action suits against two wholesale grocers. Each retail grocer did business with and had an arbitration agreement with only one of the two wholesalers.
According to the Eighth Circuit's opinion, "[i]n an effort to avoid arbitration, each Retailer brought claims only against the Wholesaler with whom they did not have a supply and arbitration agreement." At the District Court level, the wholesalers argued that the doctrine of equitable estoppel permitted the non-signatory wholesalers to invoke the arbitration agreements and moved to have the retailers' claims dismissed and arbitration compelled. The District Court granted the wholesalers' motion.
On appeal, the Eighth Circuit reversed holding that parties cannot invoke the doctrine of equitable estoppel in order to enforce arbitration agreements to which they are not signatories. The Court noted that
[E]quitable estoppel applies when a complaint involves "allegations of prearranged, collusive behavior demonstrating that the claims are intimately founded in and intertwined with the agreement at issue.” In contrast, merely alleging that a non-signatory conspired with a signatory is insufficient to invoke equitable estoppel, absent some “intimate . . . and intertwined” relationship between the claims and the agreement containing the arbitration clause. [citations omitted]
Here, the Eighth Circuit found that the retailers' claims were not intertwined with the agreement containing the arbitration clause.
The Eighth Circuit remanded the case to address the wholesalers' claim, left unresolved by the District Court, that some of the arbitration agreements are enforceable by non-signatories as successors-in-interest. It did not address the retailers' arguments that the arbitration agreements are unenforceable as against public policy, as that argument will only be relevant should the District Court resolve the successor-in-interest argument in the wholesalers' favor.
Judge Benton dissented.
Friday, March 8, 2013
Washington Law Review Conference Announcement and Survey
Survey in Connection with Upcoming Symposium on Contracts Casebooks
The Washington Law Review is preparing to host a print symposium in December 2013 on the exciting new contracts book, Contracts in the Real World: Stories of Popular Contracts and Why They Matter, by Prof. Lawrence A. Cunningham of George Washington University (published by Cambridge University Press in 2012). This innovative text embraces a modern, narrative approach to contract law, exploring how cases ripped from the headlines of recent years often hinge on fundamental principles extracted from the classic cases that appear in contracts casebooks. Such an approach suggests new ways to imagine modern casebooks.
In addition to an article by Professor Cunningham, the WLR will also publish pieces in the December 2013 issue of the Washington Law Review by, among others:
Before the symposium, participants are interested in learning from contracts professors around the country. The purpose of this survey is to gather information about the material being taught in contracts classes, and the advantages and/or deficiencies of the approaches taken by current contracts textbooks.
The WLR would be grateful if you would complete our online survey by April 15.
The information (in both aggregate form and by individual response) will be distributed to the symposium’s participants, and may be reprinted in the Washington Law Review. Although the survey can be completed anonymously, the WLR invites you to leave your name for attribution if your responses are included in our symposium issue.
Thank you very much for your thoughts,
Thursday, March 7, 2013
Eighth International Conference on Contracts: Now Available for Viewing
The full proceedings of last month's conference in Fort Worth are now available for your viewing pleasure here. Both picture and sound quality are very high. It's a beautiful thing to see and hear!
Wednesday, March 6, 2013
New in Print
Frank O. Brown, Jr., Construction Law, 64 Mercer L. Rev. 71 (2012)
Jennifer Camero, Two Too Many: Third Party Beneficiaries of Warranties under the Uniform Commercial Code. 86 St. John's L. Rev. 1 (2012)
Omar M. Dajani, Contractualism in the Law of Treaties, 34 Mich. J. Int'l L. 1 (2012)
Royce de R. Barondes, Side Letters, Incorporation by Reference and Construction of Contractual Relationships Memorialized in Multiple Writings, 64 Baylor L. Rev. 651 (2012)
Jennifer S. Martin, Applying Economic Loss Eoctrine to Article 2 Transactions: A Doctrine at a Loss. 25 St. Thomas L. Rev. 19 (2012)
Tuesday, March 5, 2013
Magic Johnson's Offer to Tempt LeBron James
LeBron James participated in this year's NBA All-Star game but one former player, Magic Johnson, was not happy. Magic, like many fans, would like to see the league's star players participate in the fun events leading up to the game, such as the slam dunk contest. Apparently, Magic would like that so much that he's willing to offer $1 million to the winner of next year's slam dunk contest if the contest includes LeBron James. He made that offer on ESPN's show, NBA Countdown:
When I first learned of this, I suspected that Magic's statement was an offer to James himself. However, in the video, Magic appears to say that the money would go to the winner of the contest, LeBron or not (OK, sure, the winner likely would be LeBron but you never know--underdogs can win, too).
Jalen Rose, Magic's co-host of the show NBA Countdown, stated that another player, Blake Griffin, would have to participate, too. Magic's verbal agreement with Rose seems to indicate a modified offer--one in which the $1 million payout is now conditioned on the participation of James and Griffin. From the video, it also appears that Magic is bargaining for performance versus promise but I'm not 100% sure.
For professors looking for a modern-day reward-style offer, this could serve as a less political alternative to the recent reward-style offers by Donald Trump and Bill Maher, about which we previously blogged.
[Heidi R. Anderson]
Surrogate Offered Money to Have Abortion
After a surrogate refused to abort a fetus with abnormalities, a tangled legal battle ensued. The surrogacy contract provided that the surrogate would have an abortion "in case of severe fetus abnormality" but the surrogate refused the biological parents' pleas (and offer of $10,000) to have an abortion. Here's some of the story from CNN.com:
On February 22, 2012, six days after the fateful ultrasound, Kelley received a letter. The parents had hired a lawyer.
"You are obligated to terminate this pregnancy immediately," wrote Douglas Fishman, an attorney in West Hartford, Connecticut. "You have squandered precious time."
On March 5, Kelley would be 24 weeks pregnant, and after that, she couldn't legally abort the pregnancy, he said.
"TIME IS OF THE ESSENCE," he wrote.
Fishman reminded Kelley that she'd signed a contract, agreeing to "abortion in case of severe fetus abnormality." The contract did not define what constituted such an abnormality.
Kelley was in breach of contract, he wrote, and if she did not abort, the parents would sue her to get back the fees they'd already paid her -- around $8,000 -- plus all of the medical expenses and legal fees.
Fishman did not return phone calls and e-mails from CNN.
Kelley decided it was time to get her own attorney.
Michael DePrimo, an attorney in Hamden, Connecticut, took the case for free. He explained that no matter what the contract said, she couldn't be forced to have an abortion.
DePrimo sent an e-mail to Fishman, the parents' lawyer, stating that Kelley was not going to have an abortion.
"Ms. Kelley was more than willing to abort this fetus if the dollars were right," Fishman shot back.
"The not-so-subtle insinuation that Ms. Kelley attempted to extort money from your clients is unfounded and reprehensible," DePrimo responded. "If you wish to propose a solution to this unspeakable tragedy, I will listen and apprize (sic)my client accordingly."
"However, as I mentioned in my previous correspondence, abortion is off the table and will not be considered under any circumstance," he said.
The entire story is here.
[Meredith R. Miller]
Weekly Top Tens from the Social Science Research Council
Monday, March 4, 2013
Walker-Thomas Brooklyn Redux?
This case is part of a very unfortunate trend in this Court's docket. Generally speaking, the fact pattern tends to be as follows: A person goes into a store and contemplates making a purchase for an amount of money that is beyond his or her means. The store offers to set him or her up with financing and induces the purchaser to enter into the deal. Any attempt to back out of the deal either before the goods are delivered or immediately thereafter is rebuffed by the store as the store now claims that all sales are final. The financing company pays the store and, when inevitably the poor quality, shoddily constructed furniture, appliances, or whatnot, begin to break, the buyer calls the store — unhelpful since they were already paid — and the financing company which argues that it is merely a lender and has no obligations as to the merchandise. These conversations, unfortunately, seem to happen long before the credit payments are complete and the purchaser often defaults. The financing company sues the buyer and the Court is faced with a quandary. On one hand, the financing company did pay the store for the goods and the buyer got some use of the same. On the other hand, the purchaser is getting charged interest at a high rate for goods that were never worth the purchase price and, often, has no recourse against the store which, even if it is still in business, rarely is impleaded in the case.
Capitol Discount does business with furniture stores in the NYC metro area, financing the customers’ purchases. Anna Rivera went to Universal Furniture to purchase a couch and the financing was from Capital Discount. Capital Discount sued Rivera for $3292.01 plus interest. Rivera answered pro se and the court dismissed the complaint, holding that no contract was formed and, in any event, is was unconscionable.
The uncontradicted story (record citations omitted):
In August of 2007, Anna Rivera, then working for New York City Housing, went to Universal Furniture looking to purchase furniture for her living room. According to her version of events, she expressed potential interest in certain couches and was told that they would do a credit check and, if approved, they would call her. Under the impression that she was applying for a credit check, she signed a document entitled "Security Agreement — Retail Installment Contract". At that point the various blanks on the form — the store's information, her information, the articles purchased, the prices, and payment terms — were not yet filled in and she did not read the document before signing it. Plaintiff's Vice President (and part-owner), Adam Greenberg, suggested that the rest was filled out by the store since Plaintiff received a completed contract from the store. That is a logical supposition, but speculation nonetheless in the absence of any representative from the store. Contemporaneously, Defendant also signed a Credit Application, according to her, filling out only the section seeking her references. The top portion of that document clearly was filled out in a different handwriting, Plaintiff's counsel admitting that portion could easily have been filled out by the store.
Thereafter, Defendant got a call that the furniture was going to be delivered. Even following delivery, no one told Defendant how much the furniture cost nor the payment terms. It was one week afterward that she received a filled-in copy of Plaintiff's Exhibit 1 in the mail reflecting a base cost of $3500, $3300 of which were financed at 24.9 percent, and a total outstanding balance of $4463.10 to be paid in 30 monthly installments of $148.77. Once she saw the amount that they intended to charge her, Defendant called the store and told them to take back the furniture since, now that they provided a price, she thought that the furniture was too expensive. The store refused to comply with her request telling her that all sales are final. Having made only one payment to Plaintiff and a $200 down payment to the store, Defendant defaulted.
The court held that there was no contract:
In this case, Defendant's uncontradicted testimony makes it clear that, when she was in the store, there was no offer to sell the furniture or at a minimum no price was given, she did not accept an offer to sell the furniture, she did not assent to the terms of the contract, and she did not intend to be bound. It is undisputed that she received consideration — the furniture. Nonetheless, no contract was formed in the absence of most of the elements for forming a contract. By accepting the furniture, Defendant still did not enter into a contract to pay. Material terms, most notably the price, were still not agreed upon and, when she learned what they were thereafter, Defendant called the store and expressed her unwillingness to enter into the agreement.
Even so, the court also held that it was both procedurally and substantively unconscionable:
With respect to the first prong, examples of procedural unconscionability include "high pressure commercial tactics, inequality of bargaining power, deceptive practices and language in the contract, and an imbalance in the understanding and acumen of the parties" (Emigrant Mortg. Co., Inc. v. Fitzpatrick, 95 A.D.3d 1169, 1170 [2d Dept 2012][citations omitted]). Crediting Defendant's testimony in the absence of a witness from the store to rebut her account, such elements appear to be present here. Steps were taken by the store to force her into the deal — she left the store without any intention of getting the furniture, they called her and delivered the furniture without her agreeing to acquire it, they failed to give her a price repeatedly until a week after delivery, and then they refused to take back the furniture when she promptly complained. The store and financing company certainly had greater bargaining power, understanding, and acumen than someone of limited means who could not easily get credit elsewhere and who is a stranger to this sort of transaction. Further, the agreement itself is difficult to read and understand. The front contains various provisions in different areas of the paper and in different size fonts. The terms on the rear are printed in light ink and are virtually unreadable. Thus, the procedural unconscionability prong is certainly met here.
The substantive unconscionability requirement, that is unconscionable terms within the contract, is also met. "Examples of unreasonably favorable contractual provisions are virtually limitless but include inflated prices, unfair termination clauses, unfair limitations on consequential damages and improper disclaimers of warranty" (Emigrant Mortg. Co., 95 A.D.3 at 1170 [citations omitted]). As Defendant herself noted, to pay $3500 for a couch and loveseat, especially for furniture of a quality that lasted barely two years, is ridiculous. Further, there is a clause limiting liability on behalf of the seller to the amount paid by the buyer. This too is unreasonably favorable to one party. Thus, the substantive prong is also met and the alleged agreement is unconscionable.
Capitol Discount Corp v. Rivera, CV-6114-12, NYLJ 1202590031804, at *1 (Civ., KI, Decided February 25, 2013).
[Meredith R. Miller]
For Those Who Have 76 Days to Spare
( H/T to Ben Davis -and his student - for posting about the article to the Contracts Prof list serv).
This article indicates that the average Internet user would need 76 work days in order to read all the privacy policies that she encounters in a year. (Unfortunately, the link to the study conducted by the Carnegie Mellon researchers and cited in the article doesn’t seem to be working). But you don’t need a study to tell you that privacy policies are long-winded and hard to find. That’s one of the reasons you don’t read them. Another is that they can be updated, often without prior notice, so what’s the point in reading terms that are constantly changing? Finally, what can you do about it anyway? Don’t like your bank’s privacy policies – good luck finding another bank with a better one.
So, what’s the difference between a contract and a notice? The big difference is that the enforceability of a notice depends upon the notice giver’s existing entitlements, i.e. property or proprietorship rights whereas a contract requires consent.
If I put a sign on my yard that says, Keep off the grass, I can enforce that sign under property and tort law. As long as the sign has to do with something that is entirely within my property rights to unilaterally establish, it’s enforceable. If the sign said, however, ‘Keep off the grass or you have to pay me $50” – well that’s a different matter entirely. That would require a contract because now it involves your property rights.
Privacy policies are more like notices – and should be treated as such even if they are in the form of a contract (such as a little clickbox that accompanies a hyperlink that says TERMS). If a company wants to elevate a notice to a contract, it should require a lot more than that simple click. Because the fact is, contract law currently does require the user to do more than click – it requires the user to read pages and pages of terms spread across multiple pages – at a cost of 76 days a year. The standard form contract starts to look a lot less efficient when viewed from the user’s perspective.
Victor Goldberg on Columbia Nitrogen
We posted earlier in the semester about the baffling case Columbia Nitrogen v. Royster. Victor Golberg (pictured) wrote to us to recommend his book chapter on the subject in his Framing Contract Law (2007). Professor Goldberg names Columbia Nitrogen, together with Nanakuli Paving as a "Terrible Twosome," that should render law professors apoplectic. That is so because when courts use course of dealing or custom to set aside fied price terms, contracting parties can have "little confidence in their ability to predict the outcomes if their disputes do end up in litigation" (p. 162).
John Murray, writing in 1986, praised the decision for evidencing "a sophisticated judicial understanding of the major modifications in contract law" and for its "sophistication with respect to [UCC §] 2-207." But Professor Goldberg sees a darker story, in which CNC's counsel attempted to undo, by whatever means necessary, what had turned out to be a bad bargain." As a result, says Professor Goldberg, the court "converted a straightforward agreement into an incoherent mess" (p. 187).
Happily, according to Professor Goldberg, Columbia Nitrogen is not followed. Contractual relationships are governed by two complementary systems: legal enforcement, which has strict rules, and social enforcment, which is governed by informal norms. The mistake of the court and the "potential cost of Columbia Nitrogen" is to infer legal rules from social rules in a way that allows legal rules to hamstring informal social norms (p. 188).
It is a nice piece of wisdom to pull out of a troublesome opinion. The full details of the case, going well beyond what is available in the published opinion, can be found in PRofessor Goldberg's book.
Symposium on Competition and Procurement at George Washington University Law School
GW's Government Procurement Law Program is hosting a symposium focusing on the intersection of competition policy and procurement law. The event features two keynote addresses as well as panels, chaired by Professors William E. Kovacic, Steven L. Schooner, and Christopher R. Yukins, that explore the way competition and anti-trust concerns play out in the procurement arena.
Attendance is free, but space is limited. Reserve a seat by emailing Jessie Pierce at email@example.com.
Full details can be found here.
In other GW law news, the latest edition of their Government Contracting newsletter is available here.
Thursday, February 28, 2013
What Is the "Ordinary" Purpose of an "Extraordinary" Product?
I recently reviewed a new decision out of West Virginia involving the implied warranty of merchantability ("IWM"), Teamsters v. Bristol Myers Squibb. Many Contracts Profs teach IWM as part of their UCC coverage but some do not. For those unfamiliar...any sale of good by a merchant comes with the IWM assuming that the state has adopted its own version of UCC 2-314. Under West Virginia law (and under the UCC), goods are "merchantable" if they "are fit for the ordinary purposes for which such goods are used." Although IWM cases are common, this case is particularly interesting (at least to me) because it involved the following issue: What is the "ordinary" purpose of a supposedly "extraordinary" product?
In Teamsters, the product was Plavix, a prescription anti-coagulant. According to the FDA, Plavix's blood-thinning properties could help treat "patients who experienced a recent heart attack [or] stroke." The drug reportedly was marketed as a superior alternative to Aspirin, a much cheaper, over-the-counter anti-coagulant taken by similar patient groups. Plaintiffs alleged that Plavix's "ordinary and intended pharmacological purpose" was "being a superior alternative to asprin for certain indicated usages." Because Plavix allegedly worked no better than Aspirin, Plaintiffs alleged breach of IWM. Defendants countered that the "ordinary purpose" of Plavix was "to act as an anticoagulant" and nothing more.
The West Virginia court agreed with Defendants. The court gave the following fact-based reasons:
"The FDA approved Plavix for its blood-thinning properties in treating patients who experienced a recent heart attack, stroke, PAD, or ACS. There is no indication that the FDA approval was related to Plavix's efficacy compared to aspirin and other alternatives. Also, this Court has reviewed the Plavix labeling information, and has found nothing on that label suggesting that Plavix's ordinary purpose was to act as a superior alternative to aspirin or Aggrenox."
These reasons were supported by citations to Williston on Contracts and other sources indicating that IWM "requires only that the goods be fit for their ordinary purpose, not that they be...outstanding or superior....or function as well as the buyer would like." Thus, because "Plaintiffs [did] not allege that Plavix was not fit for its ordinary purpose of being an anticoagulant," the IWM was not breached.
When I read the case, I wasn't entirely convinced by the cited sources because they dealt with claims involving products marketed as ordinary (as far as I could tell). I also couldn't help but think back to the (in)famous claim of Papa John's regarding its pizza--"Better Ingredients, Better Pizza--Papa John's." I recalled that being an express warranty case but it turns out that it was a Lanham Act case brought by Pizza Hut. I suppose that if a product is marketed as extraordinary, the warranty claims will be based on those assertions (whether under express warranty, false advertising, etc.) and not on IWM. So, the "ordinary" purpose of an "extraordinary" product becomes irrelevant. Regardless, I'm still a bit puzzled by the question.
[Heidi R. Anderson, h/t to student, Shawn Matter]